The reaction mechanism of ethanol to propene (ETP) on phosphorus-modified acidic FAU (H-FAU) zeolite has been theoretically investigated by a two-layer ONIOM (our Own N-layered Integrated molecular Orbital and molecular Mechanics) method. The ETP mechanism is divided into four reaction pathways from I to IV. The calculated data suggest that the rate-determining steps are the dehydration of ethanol (for pathways I and II) and the ethylation of propene (for pathways III and IV). Different reaction steps are in the following order of reactivity: dimerization > proton transfer ≥ deprotonation > beta-scission > ethylation > dehydration of ethanol. Pathways I and II have almost the same reactivity as pathways III and IV. The addition of phosphorus atom decreases the energy barriers of elementary steps and is more favorable for the ETP process than the acidic Si/Al zeolite without phosphorus modification. The differential charge density (DCD), local orbital locator (LOL) and reduced density gradient (RDG) plots reveal the electron migration and the nature of transition states. The RDG plots show that there are attractive and spatial repulsive van der Waals (VDW) interactions between different organic fragments of TSs. The DCD analysis reveals that the electrons migrate from an organic fragment to another fragment. The LOL maps suggest that there are weak covalent interactions between the atoms in the forming or breaking chemical bonds.